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Aberdeen Trading i

Growyourretirementfund& Tradeyourwaytofinancialfreedom



Aberdeen Trading iii

After Ian Aberdeen graduated from Melbourne University hemanaged his family business and then operated a businessconsultancy for the next for 45 years, one of the highlights ofwhich, during the reign of President Marcos, involved overseeingsome of the large scale Philippine economic infrastructure projectsfor the World Bank. He has traded shares and operated a familysuperannuation fund for the last 30 years, and is a long-standing

member of the Australian Technical Analysts Association. Over thelast 10 years he has developed some simple share-trading toolswhich generate daily reports on trading results and identifiesshares to sell. Prior to the Global Financial Crisis (GFC) hittinghome he nervously sold his entire portfolio based on The A-LineTrading Strategy . That decision proved to be one of the bestmoves of his trading career.



Aberdeen Trading v

An introduction to trading Australian shares

Ian Aberdeen

Published by The Countryside Academy Pty Ltd 2014

www.aberdeenstockmarkettrading.com

Copyright © 2014 The Countryside Academy Pty Ltd

This publication is copyright. All rights reserved. Except as permittedunder the Copyright Act 1968 no part of this publication may bereproduced, stored or transmitted by any means, electronic or otherwise,without the specific written permission of the copyright owner.

Aberdeen Trading is a registered trading name of The CountrysideAcademy Pty Ltd

First Printing: 2014

ISBN 978-1-291-98161-2



vi How to Trade Shares

The Countryside Academy PO Box 4099, 631 Glen Huntley RoadHopetoun Gardens, VIC 3162

Ordering Information: Special discounts are available on quantity purchases by corporations,

associations, educators, and others. For details, contact the publisher atthe above listed address.



About Ian Aberdeen ....................................................................... iii

Foreword ............................................................................................... ix

Preface .................................................................................................... xi

Why share trading? ........................................................................... 13

our mantra: ...................................................................................... 14

What are the first steps? ................................................................. 15

The 1st Myth ..................................................................................... 19

How Is money made? ........................................................................ 21

What is a share?.................................................................................. 23

What is a dividend? ........................................................................... 24

How are new shares issued? .......................................................... 25

The 2nd myth .................................................................................... 27

Where do I begin? .............................................................................. 29

Share trading goals ........................................................................... 31

Isn’t share trading risky? ................................................................ 33

What is paper trading? .................................................................... 36

The 3rd Myth .................................................................................... 37

What do I need to start Trading? ................................................. 39

Which shares should I buy & how many? .................................. 43

When should I sell shares and how? ........................................... 46

Can I keep it simple? ......................................................................... 50

How do I get The A-Line Strategy? ............................................... 51

Appendices ........................................................................................... 53

Calculating Compound Interest .................................................... 55



viii How to Trade Shares

Notes ....................................................................................................... 57

Notes ....................................................................................................... 58



Aberdeen Trading xi

I received encouragement to write this book, and decided thatI could generalise to the point where my particular hardware,software, skills and trading methods were not made clear. But Ihave gone the other route and described how I trade shares – notgiving all the theory behind why I trade this way but enough ofhow I trade to allow the reader to visualise themselves at thecomputer.

There are millions of share traders around the world, eachtrading in a different way, using software packages and electronicbrokers in ways I do not. If you become a share trader you will findthat the industry is always changing and you need to keep runningto stand still. My words below will soon become half forgotten,but I hope you learn something from them. Just so long as you canget some facts, some trading rules, and a glimpse of the fear and

envy that invade share traders emotions, I will have beenprivileged to capture your attention for an hour or two.

Enjoy.

Ian Aberdeen



Aberdeen Trading 13

I started writing this book just after the Federal Budget hadbeen launched in May 2014. The budget was full of deprivationswhich the Abbot government said we had to have. The Australianpublic had recently voted in this new government at ademocratically run election, and the public got the budget they

deserved. But they did not like it. Such is life, as Ned Kelly isreported to have remarked standing at the gallows. We’ll all be‘rooned said Hanrahan before the year is out.

The purpose of this book is to show you what careful sharetrading involves, how a series of risk controls can protect yourcapital gains, and what levels of return you can expect to achieve.

A great way to get your mind into the investment challenge is

to go back 2,000 years and read the parable of the talents. Theinternet will find you a rather academic description of that parable,which finishes with the confronting warning that “to those thathave shall be given, and from those that have not shall be takenaway even that which they have.”

The parable of the talents is a good money managementlesson. Making money is one thing but using your money to makemore money is better and those that have money will inevitably

find a way to take it of those that don’t. This millennia old parablehas been the backbone of tax laws for as long as there have beentax laws.

As a child born onto a dairy farm with a bank mortgage at thestart of the great depression I can relate to the parable quite easily,But Australians born in the next generation are clearly finding thiscentury mean and scary coz things aren’t what they used to be.

Today it’s no longer smart spend all you earned, coz tomorrow we



14 How to Trade Shares

die, stuff the kids, why should we leave anything for them. TheGlobal Financial Crisis (GFC) that we had to have, put an end tothat lifestyle, at a time when grey power was retiring andgovernments were finding that they lacked the income to keep the

oldies in good health. As life expectancy stretched out towards 90years, the superannuation funds that were supposed to sustainretirees were looking less and less likely to do so.

It’s one thing to avoid leaving an inheritance, but anotheraltogether to live in poverty for your last 10 or 30 years.

So. I trade shares. I have traded for over thirty years and mademyself financially stable. I’ve also made my children financially

stable but it doesn’t stop there. You have to pick up the gauntletand carry on my work where I leave off otherwise the money willrun out.

If I can make a profit from share tradingwithout losing those profits, then I will be able tolive better for longer into my retirement, andwon’t have to rely on the government orrelatives.

So what is the first step? Read on…



Aberdeen Trading 15

To invest, you need something to invest with so if you haven’talready got some money put away safe then you’ll have to beginsaving some.

The first thing to do is to develop a life-long habit of saving.

A few coins a week at first and more as your income grows. Justdon’t spend everything that comes your way. Start a savingsaccount.

Remember though, such persistent saving to build yourretirement fund requires a good attitude. Along the way you willhave banks and stores trying to tempt you with credit cards andstore cards. If you do one thing above all else, avoid using creditcards. They use your debt to make the banks money and once they

have you in their debt it’s hard to get control of your money back.

Start an action plan. Write down how much money you makeeach week, how much you need to spend on food, travel, clothesand other things and see what’s left. This is a budget. If you findyou’re not saving as much as you need to, think what you canspend less on (food, travel, clothes etc.) and make a new target.

Income: $____________

List your expenses:

Total Expenses: $____________

Savings: (income – expenses ) $____________




The second thing to do, once your savings reach a thresholdamount which we’ll talk about later, is to invest your savings to get

it growing at a reasonable rate. For the moment let’s think aboutearning a 8% per annum return on your savings instead of themiserable 3 % which the bank pays in their savings account.

The third thing to do is to keep your savings growing for

several decades. The whole point of this is to enjoy the benefits ofgrowth with compound interest.

I’ll explain compound interest soon – it’s one of the big secretsyou need to grasp.

In the meantime, keep a lookout for penniless old people. Youdon’t want to end up like them do you? No – I thought not. Usetheir example to encourage you to start thinking about what you

spend your money on and saving more.

~

So if in five or ten years’ time you have built up a savings fundthat is available for investment, the two major alternatives to

leaving your funds in the bank, will be to invest in property orshares.

Let’s talk property first.

I happen to own our family house and a small farm almost bydefault, and have not developed a policy to suggest to others. Iknow that our accountant encourages our children to buy theirhouse first and pay off the mortgage, before investing in any rental

property.



Aberdeen Trading 17

On the other hand a recent paperback by a self-madesuccessful property investor recommends to borrow as much asyou can from your bank to buy a second property for investment,because that way you will soon be earning enough from capital

gain to pay them both off.But quite recently I have read another book by Philip

Anderson in which he documents plenty of evidence showing thatreal estate prices move in an 18 year cycle.

I therefore suspect that successful property gurus may haveinvested at the right time in the cycle, because we all know storiesabout a house, or other property not selling for years, and the

bank not giving loans to buy real estate at present.There are lots of points of view to confuse you. That’s one

lesson you will learn – how to read lots of books and articles andfind the core that links them all.

Anyway this book is just about the other alternative toinvesting in shares. One thing I can vouch for is that you can sellshares a lot faster than real estate.

I became a kind-of-guru one day in November 2007 when Isat at my computer and entered sale orders to my internet share-broker to sell my whole share portfolio. It took about two hours totype in all the details of the shares held in three family portfolios,and by the 4pm market close all transactions were complete. Wewere out of the share market just before the 12 months sharemarket crash of 2008 when many others lost half their capital.

Don’t be fooled by my “Little Jack Horner” story (look it up onthe internet). There are serious risks confronting any share investor,and this book describes a share trading system which sets up awhole series of risk control tactics to earn an income from shares.

Not everyone has the life circumstances or the temperamentto trade, and recent surveys show that only a low percentage ofAustralians are successful share traders.



Aberdeen Trading 19

Growing your wealth and becoming rich isn’t about making more money.

It’s about protecting the money you alreadyhave and using it wisely to make more money.



Aberdeen Trading 29

Several decades ago while working for The World Bank in thePhilippines I learned a method of describing a project. It allows theproject manager to see the activities and outcomes that he willmanage, and the financial and social goals that the project isexpected to achieve. It is also a valuable document for thosewanting to monitor your progress such as your bank manager oryour partner.

We used to set the Logical Framework out on a large sheet,with three columns. We pinned the completed Logical Frameworkto the office wall and kept it updated for everybody to see.

The first column contained the hierarchy of Goals, Activitiesand Outcomes that you will find below.

The second column showed achievement indicators andmilestone dates for each item in column one.

The third named who was to monitor progress towards thoseachievements and how often.

Whenever I was given the job of monitoring from the thirdcolumn, I always found my presence was unpopular: an unwantedpest. But someone other than the manager ought to be watchingand reporting.

I strongly recommend that once you get the hang of the logicbelow, you should decide the correct goals and activities for yourown circumstances and set them out on a sheet of paper in thethree column format. It will soon become a powerful tool forproblem solving, and there will be problems ahead.

The most disappointing solution which you may decide ormay be forced onto you by others is to stop share trading. That




outcome is contrary to the usual recommendation to never giveup, just sort out your problems and keep trading.

It is well worth committing your finished Logical Framework tomemory. That way when you identify that your share profits are

heading the wrong way.

My trading system is designed to alert you daily when suchproblems arise.

When you feel the surge of fear, because you have memorisedthe Logical Framework, you are still able to visualise your actionplan that will lead to a diagnosis of cause and best correctiveaction.



Aberdeen Trading 33

I have a close relation who is a world-leading medicalresearcher. He states bluntly that share trading is gambling, not tobe practiced.

I once heard a preacher say that “It is not that Christianity hasbeen tried and found wanting, it is simply that it has been triedand found too difficult.”

That is how successful share traders view their business. Theyknow there are real risks and that some people lose capital to theextent that they will never trade shares again. The solution is todevelop a trading system that contains a series of risk controls – what came to be known in World War II as the Russian defence i.e.defence in depth.

At Aberdeen Trading we have a very tight set of moneymanagement rules and operate with a high degree of riskmanagement. Taking from the history books we have called oursystem of deeper and deeper control levels the Russian Defence.What follows is a list of the seven risk controls we use, each onecreating a further barrier to risk.

The first control is to have a written plan, after the style ofthe Log Frame above with each goal and activity expanded into ashort text. This will allow rapid trouble-shooting, and the

Australian Taxation Office requires owners of Self-ManagedSuperannuation Funds to create and follow a written managementplan.

The second control is to only use the maximum allowedcapital to trade shares when your system is generating the profitlevels you seek i.e. cash percentage control.

Our proprietary indicator the A-Line is used to read the mood

of the market, and decide what cash percentage is appropriate. We




publish a weekly newsletter which begins with a Dow Theoryanalysis of the Australian share market, and a reading of ourproprietary A-Line index of trader sentiment, before thansuggesting an appropriate percentage of cash to hold in reserve

given those readings.The third control is to buy mostly Class A shares (definition

below ) that show a rising price chart.

We adhere to the well-known motto that the trend is yourfriend, so never trade against the trend. A macro market uptrend iscalled a bull market, but within the chart of that market index (I usethe All Ordinaries Index ) there will be mini and larger downswings

known as corrections. The trend is your friend motto stronglywarns against trading those downtrends, and I do not.

The fourth control is to use software like the Trader’sWorkbook available from Aberdeen Trading which draws a dailychart of accumulating trading profit from capital gain anddividends so early warning of trouble is clearly seen. They say apicture is worth a thousand words and the sight of a plungingprofit I find to be very motivating. We expect it to sometimes

happen, and we will survive if we respond quickly.

The fifth control is to score the daily and weekly charts of allshares held at least each weekend, and to sell shares with adeteriorating chart. I have developed a scoring system which weteach to A-Line Newsletter subscribers available on the AberdeenTrading website. It is reliable enough to allow rapid sorting.

The sixth control is to choose the most probable and avoid

the least probable trade. A major part of that process is to checkboth weekly and daily charts, with a few of the many technicalindicators turned on.

The seventh control is to avoid risk by not putting all youreggs in one basket just in case the cane basket falls apart. Theshare trader’s version of this risk control is called position sizing,and I will get to that shortly. Don’t worry, it’s not as intimidating as

it sounds.



Aberdeen Trading 35

A thoughtful reader will have detected that there is always anelephant in the share trading room; namely the threat of a suddentrend reversal which you did not see coming. Older traders resignthemselves to the truism that you cannot predict the future

direction of the share market or of individual shares. Short-termtraders who sit in front of a computer all day keep looking forsignals to sell before a price crash does them much harm. We arebuilding a list of those tools. That list includes the Multiple MovingAverages

That brings me to a very special method of guarding againstsudden price loss – The Stop-Loss. You will be able to explore thenature and use of this tool with your internet broker, both whenyou own shares in a company and when you are trading ContractsFor Difference (CFD’s).

Swing traders used to sell shares short, but a new method ofselling CFDs is now used to trade bear markets when the macrotrend of the market is down. CFD trading allows you to make moreprofit because you are using borrowed money, but it equallyallows you to lose more money because your losses quickly

multiply. CFD’s are a high-risk proposition and not something thenovice trader should be considering. Only when you havesignificant experience should you begin thinking about CFD’s andat that point there are a lot of dedicated books on the subject bypeople who are experts in using CFD’s.

Finally we come back to the trend motto again. If you buy asshare with a falling share price you are clearly playing chicken withthe market. You are daring the market to keep pushing the price

lower and destroying you capital. That is a risk I am not preparedto take, so I only buy shares with a rising price and sell those with afalling price.



Aberdeen Trading 37

No successful person ever got rich quickly.

That’s why the saying “easy come, easy go” is

true.

It’s much better to get rich slowly

Getting rich slowly lets you learn about how tobest make money and how best to protect it.



Aberdeen Trading 59

Get a copy of How To Trade Shares to read the completeguide.

Learn more about the A-Line Market Index and how it helpsour subscribers protect profits and increase return on investments.

Visit www.aberdeentrading.com today and start to grow your

financial future.

We don’t do journalism or barrage you with emails. We justsend out a weekly straight-to-the-point newsletter that increasesyour trading profitability by education and analysis.

http://www.aberdeentrading.com/




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